Wednesday’s FOMC announcement probably did not come as a surprise to anyone. The Fed will continue it’s near zero rate policy for the near future. The only debate that may have taken place is if September is still a possibility for a change in policy.
As we have heard many times previously, the Fed will rely on economic data to make a decision. Jobs data and inflation will be the key factors for Fed direction. The Fed has made “considerable progress” in regards to employment, but “the committee wants to see evidence of some further progress.” They also did give a clue on what sort of pace the rate hikes would take place. Tightening will be “gradual” and won’t follow a “mechanical formula”.
The equity markets seemed to enjoy the Fed action. Futures rallied higher, and then gave some back before the close of Wednesday session. Most traders and investors realize that there is still a bit off time for equity index markets to enjoy the flow of cheap money.
I am looking for the S&P 500 to move higher and test resistance again heading into July. The jobs data in July will be closely watched for any hints that a Fed hike in September is possible. However, I expect to see profit taking and retracements to take place at the same time as another upward move. Two steps forward, one step back.
I am looking to play an out of the money strangle and collect premium. I like selling the July E-Mini S&P 500 1995-2150 strangle at 15 points ($750.00) or better. We are basically saying we think the S&P will be between those two strikes at expiration on July 17th. There is unlimited risk involved, but the trade is not a loser until the futures are 15 points through either strike. If you have the ability to trade multiple contracts I would look for an early exit at 7 points, and ride the rest into expiration. Maximum profit is premium collected minus fees and commissions.
For those interested Walsh Trading is holding our weekly grain webinar Thursday June 18th, at 3 pm Central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
